With the end of the FBT year, employers will be focusing on strategies on how to minimise their FBT liability and possibly reduce their employee’s reportable fringe benefit disclosure.
What will employers expect during the 2019 FBT year? The ATO has announced an additional compliance activity and guidance in relation to audit hot spots for the 2019 FBT year, which will have a focus on transactions between small business entities and businesses owners.
The following are key audit targets for 2019 FBT year:
Audit traps related with employers paying employee home internet costs
There is an increasing number of employees working from home where employers agree to pay for or reimburse part of their internet costs. This has prompted the ATO to consider if such benefit provided will be exempt from FBT given minor benefit can be applied, or reduced under the otherwise deductible rule.
The ATO has released guidance determining the work-related use based on time spent or data usage of home internet (PS LA 2001/6). This will require employees to keep a four-week diary of home internet usage to substantiate work usage.
Given the above compliance will not be followed or provided by all employees, the option to consider is the payment of an allowance for internet costs.
Benefits received by shareholders and beneficiaries
When benefits are provided by a family entity such as a company or trust, it is necessary to consider whether benefit is provided to the recipient in their capacity as an employee or as a shareholder/beneficiary.
Depending on the nature of the benefit and nature of the entity providing such benefit, the provision of particular benefit may trigger FBT liability.
The following are factors determining the status of the recipient:
- Is the benefit connected to the employment duties?
- Nature and extent of any trading activities of the business
- Nature of the benefit
- Extent of any services provided by recipient
- Was cash remuneration paid?
- Can business claim a tax deduction in respect of the benefit?
- Extent of control
- Is benefit provided to arm’s length employee?
Benefits provided by third party (client, supplier)
It is important to know when certain benefits are provided to an employee by a third party (client, supplier or contractor), the employer may be subject to FBT. The most common (non-cash) benefits provided to an employer’s staff include provision of gifts (ie. bottle of wine) or an invitation to a Christmas party or corporate box function.
In many cases, the benefit is provided to key staff members such as managing or board directors, managers and senior staff. The FBT liability will arise when there is employer involvement in the benefit arrangement. However FBT exemption can be applied applying minor benefit.
Problems with employers paying Living Away From Home Allowance (LAFHA)
A LAFHA is allowance paid to an employee to compensate them for additional non-deductible expenses incurred, and any disadvantages suffered as a result of an employee living away from their normal residence for the employment purpose.
Given that the FBT applies to the full amount of the allowance paid, and instead of a cash allowance payment, the employer can provide other fringe benefits such as actual food or accommodation expenses incurred at the new location.
Declaration and compliance of documents
The ATO has initiated that when they conduct a review of the FBT return, they will be focusing on the following:
- Correct declaration forms have been used
- Signed declarations have been obtained prior due date of FBT lodgement
- All declarations have been provided in relation to an exempt claim
For More information
For more information on the above FBT audit targets and how you can further minimise your FBT liabilities, please feel free to contact Smiljan Jankovic – Director at Archer Gowland on (07) 3002 2699.
Archer Gowland will be hosting our 2019 Tax Update Seminar on Thursday, 30th May 2019. To submit your initial interest, please email chrisl@archergowland.com.au
